Sterling rose on Friday after a survey showing a strong rise in UK construction activity added to signs of an improving economy, and as below-forecast US jobs data weighed on the dollar. The pound was up 0.8 percent on the day at $1.5237, more than a cent above a two-week low of $1.5104 hit earlier in the day.
UK construction activity rose far more than expected in July to hit its highest level in over three years. This followed earlier strong house prices data and an upbeat manufacturing survey on Thursday. The pound then extended gains after data showed US employers slowed their pace of hiring in July. This caused the spread between US and UK 10-year bond yields to narrow as market participants pared back expectations that the US Federal Reserve could start scaling back stimulus as early as next month.
"That was a shocker of a payrolls report ... the yield differential is now less in the dollar's favour," said Kathleen Brooks, research director at FOREX.com. But analysts expected the pound's gains to be limited by caution before Wednesday's Bank of England Inflation Report, when the central bank could indicate that interest rates will stay at record lows for a prolonged period.
"Sterling/dollar is still range-trading because there is so much uncertainty. There seems a reluctance to keep long positions in sterling and equally there is no appetite to push it below $1.50," FOREX.com's Brooks said. The pound faced stiff chart resistance just below $1.5300, with the 100-day moving average at $1.5296 and the 55-day average at $1.5291. Sterling also rose against the euro, which lost 0.35 percent to 87.02 pence, well below a 4-1/2 month peak of 87.77 pence hit on Thursday.
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